More than 2 million households are facing increased mortgage payments following the Bank of England’s latest rate hike, which experts say could create more “mortgage prisoners”.
The main interest rate was raised from 1% to 1.25% in response to rising inflation.
Borrowers with adjustable-rate mortgages — those that are in line with bank rates — will see their monthly payments increase.
For those on standard variable rates, the average annual increase was £191, compared with £303 for those tracking transactions, according to industry body UK Finance.
The increase affects one in four mortgage borrowers, equivalent to about 2.25 million homes.
Since the Bank of England raised interest rates from a low of 0.1% in December 2021, people on standard variable rates have seen their average monthly mortgage repayments rise by £90.
This equates to an extra £1,080 a year, affecting an estimated 1 million households.
For more than 800,000 borrowers with tracked transactions, the average increase was £57 a month or £684 a year.
How people with fixed rates will be affected
Fixed-rate homeowners are only affected by rising bank rates when they sign a new contract near the end of the fixed-rate period (usually two to five years).
The number of deals closed this year was 1.3 million, according to the British Finance Corporation.
Currency editor Jenny Ross said people with floating rates should consider moving to fixed rates now, as they might find a more competitive rate and protect themselves from future rate hikes.
“However, time is of the essence as mortgage rates have recently risen and are likely to continue to rise,” she told.
The average rate on a two-year fixed-rate mortgage has risen to 3.25% from 2.34% in early December, according to mortgage comparison site Moneyfacts.
During the five-year term, the average interest rate increased from 2.64% to 3.37%.
The lowest available fixed-term rate also rose.
For a 20% deposit, it was 1.29% in December and is now 1.7%.
There are also fewer offers at market caps, which means less choice for consumers.
AJ Bell’s head of pension policy, Tom Selby, said renters “could see costs go up”.
“Landlords will inevitably pass on their own higher costs, although it depends on the terms of your lease,” he told.
Businesses renting from commercial landlords would face similar problems, he said.
Mr Selby said the bank’s rate hike could cause adjustable rate mortgage borrowers to “accumulate more cost of living pain”, which “could be enough to put some households in serious financial distress”.
The risk of further “mortgage prisoners”
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said that over time, rising prices and interest rates could create more “mortgage prisoners” – people stuck with expensive mortgages, unable to get cheaper transaction conversion.
“Banks consider higher costs when calculating affordability,” she said.
“If you add in higher rates, there’s a risk that lenders will be concerned that you won’t be able to afford your new mortgage.”
More than 200,000 Britons are believed to already be in this situation, said Rachel Neal, a leading campaigner for the UK Mortgage Prisoners group.
More people have joined the group in recent months, she said, and she expects the number to increase significantly as people’s temporary contracts expire.
“We just don’t know how people are going to deal with it because they’re absolutely desperate,” she told, adding that suicides and breakups have occurred as people can’t cope with financial stress.
Lou became a mortgage prisoner a few years ago after she and her partner were too ill to work.
She is now a full-time unpaid carer for her partner, who has a number of health issues. Both focus on interests.
They took out a mortgage when they were self-employed and financially better off and now pay 6.25 per cent interest on the house they’ve lived in for 23 years.
Coping with mounting payments was “very difficult” due to rising interest rates and fears of losing their homes, she said.
Asked how she felt about the latest rate hike, she told: “I’m absolutely shocked because it costs every penny we have. I’m pretty sure this hike will be the last. We Affordable.”
Helen Dean, 52, is a former NHS worker who became a mortgage prisoner after being too ill to work.
A single mother of three living in Nottinghamshire has chronic menopausal symptoms including depression and anxiety, as well as muscle and joint pain.
Like Lou, she took out her mortgage when she could work and earn a decent salary. Your mortgage rate has risen to 4.78%.
She’s currently using her pension and savings to pay her mortgage and worries that as she ages, there’s not much left.
“There is no way out for me at the moment,” she told. “I just have to sell the house and live on equity, which means I’ll have to pay rent for the rest of my life until I die.”
Mortgage Prisoners UK is calling on the government to step in and provide more support.
A Treasury spokesman said: “We know people are grappling with rising prices and are concerned about the coming months. That’s why we’ve stepped in to ease the burden, helping eight million of the UK’s most vulnerable this year through direct payments of at least £1,200. Households – and provide each household with £400 to help pay their energy bills.
“The fuel tax rate has been maintained as part of our $37 billion support package.”
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